Universal Music Group (AS:UMG), in which Bill Ackman’s Perishing Square (NYSE:SQ) Capital holds a significant stake, saw its shares crash more than 26% Thursday after releasing quarterly results.
The company reported higher-than-expected second-quarter sales on Wednesday, however, this was offset by a slowdown in the subscription and streaming segment.
UMG recorded music subscription revenue grew by 4.1% in the second quarter, a significant drop from the 13% growth seen in the same period last year, when adjusted for constant currency.
But subscription revenue came in at 1.137 billion euros, falling short of the Visible Value consensus of 1.179 billion euros.
Streaming revenues also came in below expectations, totaling 343 million euros compared to the 387 million euros anticipated by analysts, according to Visible Value consensus.
The streaming segment experienced a 4.2% year-over-year decline, or 3.9% in constant currency, "due to a deceleration in growth at key advertising-based platform partners as well as shortfalls on certain platforms related to the timing of deal renewals," the company explained.
Overall, second-quarter revenue amounted to 2.93 billion euros, a 9.6% increase year-over-year in constant currency terms, surpassing the 2.89 billion euros expected by analysts.
According to FactSet data, Ackman’s Pershing Square holds a 10% stake in UMG and is a top holder in the company outside of financier Vincent Bollore.
Following the report’s release, Citi analysts downgraded UMG stock from Buy to Neutral, citing two main reasons.
“The first is the unprecedented level of revenue volatility between different revenue lines,” analysts wrote. “The second is that, just as we expected cash conversion to become cleaner, it appears to have got worse with a fairly significant step-up in net content investment.”
“We suspect the cause of volatility in both metrics may prove temporary, but until the group can deliver a re-acceleration in growth/inflection in FCF, we expect the disappointment to weigh on sentiment – and the multiple – in the near-term,” they added.
Today's crash took UMG's price per share down to around 21.1 euros, a level not seen since July 2023.